Nassim "Black Swan" Taleb Busted For Exaggerating Returns

Universa Investments, the Nassim Taleb-affiliated fund group, is opening a new fund where they'll bet on inflation. Sounds good. Lots of smart people think inflation is on the way, and just as many people want to protect against it.

But before you do, make sure you have a reasonable idea of how much he's made clients in his last fund. There's a nasty mis-fact flying around in a recent GQ article, which claims he made his clients $20 billion.

Here's Taleb's exact quote in the article:

“I went for the jugular—we went for the max. I was interested in screwing these people—I’m not interested in money, but I wanted to teach them a lesson, and the only way you can do it is by trying to take it away from them. We didn’t short the banks—there’s not much to be gained there, these were all these complex instruments, options and so forth. We’d been building our positions for a while…when they went to the wall we made $20 bln for our clients, half a billion for the Black Swan"

Amazing returns, and great quote! Except, not really.

Janet Tavakoli of Tavakoli Structured Finance was suspicious and confirmed that it was inaccurate

I checked with Nassim Taleb regarding the $20 billion in gains and asked if he were misquoted. He responded via email: “The quote is inaccurate. THe [sic] 20 billion might correspond to the face value of positions.” This response is both vague and different in character from the mythical $20 billion in gains inaccurately quoted in GQ’s article. The total gains could be a tiny fraction of what Taleb loosely describes as “face value.” 2

Why is GQ’s mistake important? In my opinion, public claims of enormous private hedge fund gains require credible back up, and one would think that GQ would have known that before it inaccurately quoted Taleb as having made a bell ringing gain of $20 billion for clients. Presumably, the error referred to outside clients, not the black swan fund itself, but it could have the side effect of attracting investors to the black swan fund, similar to advertising or salesmanship.

The whole letter she sent out is below, but we'll say that if anything Tavakoli is being charitable. It certainly doesn't sound like "we made $20 billion for our clients..." could possibly mean the same thing as the 20 billion corresponding to the face value of the positions. So much for Taleb's supposed humility.: